Lucas critique

Definition

The observation that economic equations estimated under one policy regime are unlikely to be valid under another policy regime, since marketparticipants will take the policy regime into account in forming their behavior. What is needed is to model rational expectations, which internalize all information, including the policy regime. Due to Lucas (1976).

Use Lucas critique in a sentence

“
The lucas critique effected us in some way, but I did not know exactly what it was and I wanted to know.
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